Improving economy not all good news

YESTERDAY part of the stimulus grant on home insulation was wound back; today the Reserve Bank meets to discuss whether it will lift interest rates for the second month in a row – which it is widely tipped to do.

The financial relief offered to Australian households in the wake of the global

financial crisis appears to be coming to an end. Of course, there is some outstandingly good news in Australia’s economy right now. Jobs growth is better than expected and unemployment, which was once expected to top 10 per cent, is now expected to peak at a comparatively modest 6.75pc.

However, all this good news will be of little comfort to the thousands of Australians now gripping the rails as they prepare for another ride on the interest rate roller-coaster.

The obvious issue with rising rates is the threat they present to mortgage holders – and with households now more heavily indebted than ever thanks to high house prices, those issues could be severe indeed.

Another area rising official interest rates could play havoc with is in the business sector. A run of low rates combined with poor sales as Australians battened down for the economic storm means many businesses will face the same problems with bank managers as homeowners.

Then there is manufacturing. Lifting rates when the rest of the world has them low means a higher Australian dollar. Already there is talk of reaching, and then passing, parity with the US dollar. That means Australian goods will be more expensive in the international market, giving businesses relying on exports their own financial crisis.